Non Partisan Plan

On August 14, 1935, United States President Franklin D. Roosevelt signed the Social Security Act into law, establishing a social safety net for all Americans and codifying the federal government's responsibility to provide for the welfare of disabled citizens or those in retirement. Thus began the story of one of the most popular programs ever created by the federal government.

Bipartisan Appetite for Solutions

In the intervening years, the program, though popular, has faced a number of challenges. The greatest of these is the fact that the largest generation since the inception of the program is about to retire, and the successive generations paying into the program are far smaller. This has created the potential for a structural deficit in the social security trust funds in the near future. The trustees expect that by 2035, the fund will be depleted, forcing a nearly 25% cut in benefits to beneficiaries.

There is widespread, bipartisan support for solidifying the financial future of the social security program. In fact, surveys have indicated that as many as 72% of those questioned favored expanding benefits in the future. To those ends, many potential solutions have been proffered by lawmakers on both sides of the aisle over the years. They have ranged from raising the income limits on social security taxes to extend the solvency of the trust funds, to privatizing the system through individual retirement accounts. No matter the approach, the one thing that is clear is that something must be done to keep the social security system viable going forward.

In a recent report, the Congressional Budget Office estimated that the yearly trust fund deficit would average out to about 1.7% of annual GDP between 2027 and 2082. It's useful to define the shortfall as a share of GDP since it ties the projections for economic activity to estimates of what will be needed for each year's social security payout. That means that to fix the deficit in the long term, the total amount of additional revenue directed into the system must equal that percentage of GDP in order to cover the shortfall. All that remains is to determine who will pay for it, and how. Fortunately, it would only require two changes to the current tax code.

The first change that would begin to cover the social security shortfall would be to raise the tax. Contrary to popular belief, the increase that would be required is not at all extreme when coupled with an additional change to the tax structure (which will be covered in the next section). A 2% increase on both workers and employers (4% overall), phased in over the decade would cover roughly one-third of the projected shortfall.

At the time of this writing, social security taxes are only collected on the first $128,400 of earned income. Lifting this cap would cover the remainder of the shortfall when the increased rate listed above is applied to all income. Since the latest census data indicates that the median income in the U.S. sits at $53,657, and those earning above the current cap represent only 6% of wage earners in a given year, the change would not broadly impact the vast majority of Americans.

Making these two changes would immediately work to keep the social security system solvent for the foreseeable future. Mixing in a tax rate hike with a lifting of the payroll tax cap spreads the cost among the entire population of wage earners. While nobody relishes the thought of paying additional taxes, Americans have indicated a willingness to do so if it means preserving social security into the future. Of course, there will always be those that object. The only thing that will remain certain, though, is that the vast majority of Americans value social security, and are willing to ante up in order to save it.